At a glance

The Netherlands is located in Western Europe, bordering the North Sea, between Belgium and Germany. The Netherlands is part of the Kingdom of The Netherlands, which consists of The Netherlands, Aruba, and the former Netherlands Antilles (Curacao, Sint Maarten and the BES islands).

It has a prosperous and open economy, depending heavily on foreign trade. It does continue to be one of the leading European nations for attracting foreign direct investment. The Netherlands has the 16th largest economy in the world and ranks 10th GDP income. The Netherlands is the founding member of NATO, OECD, and the European Union. As a member of the EU, is provides an attractive opportunity for international businesses.

Tax summary

Corporate income tax is levied on resident and nonresident companies. Resident companies are those incorporated under Dutch civil law. In addition, companies are resident if incorporated under foreign civil law, but effectively managed and controlled in The Netherlands. Resident companies are subject to tax on their worldwide income. Nonresident companies, primarily branch offices of foreign companies doing business in The Netherlands, are taxable only on specific income items, such as real estate and business profits generated in The Netherlands.

The standard corporate tax rate is 25%. A tax rate of 20% applies to the first €200,000 of taxable income. An effective tax rate of 5% is available for income related to certain intellectual property (IP).

Participation exemption

All companies resident in The Netherlands (except qualified investment companies that are subject to a corporate income tax rate of 0%), including holding companies, are in principle exempt from Dutch corporation tax on all benefits connected with certain qualifying shareholdings (participations).

Benefits include cash dividends, dividends-in-kind, bonus shares, "hidden" profit distributions and capital gains realized on disposal of the shareholding. A capital loss that might result from the disposal of the shareholding is similarly nondeductible (however, a liquidation loss of a subsidiary company may be deductible under certain circumstances).

The participation exemption applies to all (rights to) interests of 5% or more in the nominal paid-up capital of the subsidiary, unless the participation is a "portfolio investment" (determined through the motive test). A less than 5% direct shareholding may be a qualifying participation if a related company owns an interest of at least 5% in the same subsidiary. If the shareholding is reduced to less than 5% (for example, as a result of a dilution or another event), the participation exemption may still apply for a period of three years from the date the 5% threshold is no longer met. A condition for applying the participation exemption during the three-year period is that the shareholding must have been owned by the Dutch shareholder for more than one year during which the Dutch shareholder was able to fully
benefit from the Dutch participation exemption. If the participation can be considered a "portfolio investment" on a particular date, the Dutch shareholder may no longer benefit from the participation exemption as of such date.

Withholding tax

The statutory withholding tax rate for dividends is 15%. However, several exemptions and reductions, can apply. Under the extensive Dutch treaty network and the EU Parent-Subsidiary Directive, the Dutch dividend withholding tax rate is typically reduced to a rate as low as 0%.

The Netherlands do not levy withholding taxes on interest and royalty payments by a Dutch resident company.

Tax treaties

The Netherlands currently has 91 tax treaties that are in force and more treaties are still being negotiated.